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Tuesday, May 8, 2012

Is Commerce Delaying DS379 Implementation Because of Struggles with CVD/NME and "Double Counting"?

Quick answer: it sure looks like it.

With absolutely no fanfare, the United States missed the April 25 deadline for implementing the WTO Appellate Body's decision in US-Anti-Dumping and Countervailing Duties (China) (aka DS379) which held, among other things, that the Department of Commerce's concurrent application of anti-dumping (AD) duties and countervailing duties (CVDs) on imports from China and other "non-market economies" violated WTO rules. (Lots more on the WTO's DS379 decision here if you're interested.) According to several reports[$] (and the US statement) coming out of the WTO's Dispute Settlement Body's April 24 meeting, the Obama administration admitted that it would not be meeting the already-extended deadline (the original deadline was mid-February, but the US and China had agreed to a two-month extension), and China was none-too-pleased about it.

China's angst is totally unsurprising and (in my humble opinion) warranted, given two key facts: (1) the United States has now had over a year to implement the Appellate Body's decision and only started working on the "Section 129" compliance determination in the Fall of 2011; and (2) Congress and the President just implemented a law overturning a big US court case (GPX Int'l Tire Corp. v. United States) which held that Commerce's CVD/NME methodology violated US law. In short, China was playing nice with the United States on DS379, but after the recent passage of the CVD/NME law, it's patience has worn very, very thin. Like I said, unsurprising.

Word on the street is that, as of about a week ago, the US and China still hadn't agreed on another extension for the Section 129 determination (the WTO website also has nothing new to report), so it's actually a little unclear how this legal mess will proceed. My guess (and it's only a guess) is that Commerce's repeated tardiness here will not result in any sort of formal WTO actions, and instead the agency will issue its Section 129 determinations in the next couple months, quickly followed by a formal complaint from the Chinese government against those determinations.

This all won't stop China, however, from immediately and repeatedly screaming to the high heavens about the CVD/NME issue and the United States' DS379 malfeasance. Indeed, prior to last week's high-level Strategic and Economic Dialogue meetings, experts in China noted that the Chinese government was planning to complain vociferously about US trade remedies "misuse" - no doubt alluding to the CVD/NME issue. And the official joint readout from the S&ED does address trade remedies and the WTO:

The two sides are committed to building a more open global trade system and jointly resisting trade protectionism. The United States and China recognize that it is critical to follow WTO rules when initiating trade remedy investigations and imposing trade remedy measures, to prevent their abuse, and commit to refrain from using such measures for purposes other than trade remedies themselves, including to achieve industrial policy objectives. The two sides commit to respect the decisions of the WTO dispute settlement mechanism. Both sides commit to handle anti-dumping and countervailing duty investigations in a fair, objective, and transparent manner.

That's typically-ambiguous diplo-speak, but I think it's pretty safe to assume that the CVD/NME issue did come up, and that US complaints (many justified) about Chinese trade remedy actions against US exports were countered with - and thus diluted by - Chinese complaints about the CVD/NME issue and DS379.

So, what, pray tell, is the big holdup with the DS379 implementation? What's causing US stammering before the WTO's DSB and taking up precious negotiating time at the S&ED? Well, if the recent questionnaires issued by Commerce in the Section 129 proceedings are any indication, it's because the agency still hasn't quite figured out how to handle the "double counting" issue and comply with both the new CVD/NME law and the Appellate Body's ruling. (This gets a little complicated, so stick with me.)

On March 28, 2012 Commerce issued Section 129 questionnaires in the four AD/CVD cases involving Chinese imports that were the subject of the AB's ruling in DS379. I've uploaded one of the public questionnaires here, and, as you can see, the questionnaires appear to be an attempt by Commerce align the Section 129 determinations with the new CVD/NME law's provisions on - you guessed it - double counting. As you'll recall, Section 2 of the law states that, in the event a countervailable subsidy has been ascribed to an NME import for which Commerce has already made an AD determination, Commerce must reduce the AD duty (thus mitigating the risk of double remedies) where two conditions are met: (i) it has been demonstrated that such a countervailable subsidy has reduced the average price of its US imports of the subject merchandise; and (ii) DOC determines that it can “reasonably estimate” the extent to which the countervailable subsidy has increased the dumping margin for the merchandise.

As I noted at the time the CVD/NME bill was being debated, the drafters of the new law made clear that part (i) of Section 2 imposes on NME exporters the burden of demonstrating that any subsidies conferred have lowered the NME exporter’s US import prices. Although the questions posed in the four questionnaires do not specifically reference double counting or this burden, they appear to seek information from NME exporters on how, and to what extent, any government subsidies affected the exporters' US import prices (Section 2(i) of the new CVD/NME law). On April 11, 2012, China’s Ministry of Commerce (MOFCOM) politely and fully responded to Commerce’s March 28 questionnaires.

Those responses, however, apparently were not sufficient to enable Commerce to solve the double counting conundrum and, in line with the new law, to "reasonably estimate" double counting. On April 19 - only 6 days before the DS379 deadline - Commerce issued another set of questionnaires on double counting-related issues. Humorously, the deadline for responses to the supplemental questionnaires was set for April 30, 2012 – five days after the DS379 deadline would have passed (so Commerce obviously knew that they weren't making that deadline) - but MOFCOM just-so-happened to respond early on April 25. Early responses from the Chinese government are not a normal occurrence, so it's pretty clear that this was a very passive aggressive signal from the Chinese government that they were no longer playing around here.

And, to my knowledge, it's been radio silence from Commerce ever since.

So to recap: DS379 still isn't implemented; that delay appears to be due to the controversial double counting issue, which appears to be tying the Commerce Department in knots; and this mess appears be affecting important US negotiating positions in bilateral trade negotiations. Great. Just great.